RBC Capital Defends XenoPort (XNPT); Analyst Notes M&A Potential

RBC Capital analyst Michael J. Yee defended XenoPort (NASDAQ: XNPT) amid weakness following the release of '829 data, saying shares are close to a floor, while noting potential M&A.

"Psoriasis data shows clear efficacy as we expected but undifferentiated GI side effects vs other fumarates and CELG Otezla. But if the market cap is $315M now and there is at least theoretical $200-300M + of takeout value on Horizant ($4-5/share), then Horizant could be cheap or '829 is nearly free if someone wants to run Phase III in psoriasis as a new oral drug," said Yee.

The analyst went on to say, " ... taking a step back and bottom line, the stock is at $5 now and trades near floor or book value of at least $4-5+/share or more if one says: Horizant is a $50-100M+ drug peak now under small XNPT salesforce (doing $40M run-rate now) but could be $100-200M+ under a much bigger global spec pharma company. Using a 3-5x sales multiple gets to ~$500M or $8/share. And we think there are plenty of spec pharmas who could sell more than XNPT's smaller targeted salesforce and could drive incremental accretion/profitability where M&A is happening all the time. So a value investor or contrarian thesis here could be 1) Horizant is undervalued and a 3 5x multiple could be anywhere around $500M+ ($8/ share+), or 2) Horizant has some value but '829 is basically free and has value so there is a $500M drug long-term there too, and Phase III ready and plenty of spec pharmas could use a oral dermatology drug (VRX and many others are in this market). We think deals don't happen overnight so it would take some time to play out and even drugs like IL-17's with suicidality risk or DNDN's old Provenge has value to someone (VRX actually bought both)...so there is a value thesis here at these levels regardless of what one thinks about how great or not great Horizant or '829 is."

For an analyst ratings summary and ratings history on XenoPort click here. For more ratings news on XenoPort click here.

Shares of XenoPort closed at $6.73 yesterday.

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